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Health Care and Behavioral Economics 1 (May 29, 2008)

handle is hein.congrec/cbo1015 and id is 1 raw text is: Health Care and Behavioral Economics A Presentation to the National Academy of Social Insurance May 29, 2008 It has been said that goodness without knowledge is weak and feeble, yet knowledge without goodness is dangerous.1 Peter Diamond is one of those extremely rare peo- ple who combine knowledge and goodness. Indeed-and I hope this doesn't offend anyone in the room-Peter is probably the smartest person I know. In addition to that, he is simply a wonderful person and colleague. I am thrilled that the National Academy of Social Insurance (NASI) has awarded him this year's Robert Ball Award. I will have more to say about Peter during the award ceremony later on. Peter is perhaps best known in these circles for his copious and foundational work on social insurance in general and Social Security in particular. In the language of classi- cal microeconomics, his research often serves as the numeraire-the standard by which other work is measured. It seems clear, however, that he's already addressed most of the outstanding analytical issues on Social Security-at least in the view of his coauthor.2 Peter definitively did not want this talk to address Social Security. In the spirit of Peter's intellectual energy and curiosity, I will therefore focus my remarks on another important area that has attracted Peter's attention: behavioral eco- nomics, which combines insights from psychology with those from more traditional economics. But that raises two problems. First, behavioral economics is a rapidly growing subject that is now too broad for short talks. Second, when both the NASI staff and I had asked Peter what topic he would like covered in this talk, his response was health care. As Peter has noted in a forthcoming article in the Journal of Public Economics, One of the key messages of behavioral economics is that context (also referred to as situation) matters in ways that are not recognized in standard model- ing. In health care, standard modeling alone is insufficient, and an effective policy response to rising health care costs will undoubtedly have to reflect what we are learn- ing from behavioral economics. So I will focus on behavioral economics and health care, and I hope that will satisfy all the constraints. 1. Deed of Gift, Phillips Exeter Academy, available at www.exeter.edu/libraries/ 4513_4623.aspx?tab=2. 2. See Peter A. Diamond and Peter R. Orszag, Saving Social Security: A Balanced Approach (Washing- ton, D.C.: Brookings Institution Press, 2004). In the process of writing our book together, there were many episodes in which it took several days for me to understand and then to appreciate a point Peter had casually made in our discussions. He was (usually) patient during the time it took me to catch up.

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